Key issues: Whistleblower bounty program

In its third year, the SEC’s Office of the Whistleblower Program (OWB), as mandated by the Dodd-Frank Act, continues to play an active role in combatting fraud and corrupt practices. In 2013, five financial awards were paid out with the largest being more than $14 million. As awards increase and retaliation persists as a threat, the OWB strives on the premise of ensuring whistleblower security and confidentiality.1 In June 2014, two whistleblowers were awarded $875,000 for aiding an agency investigation.

Whistleblower protection

Whistleblower confidentiality and protection continues to be one of the main functions and focuses of the OWB. In one of the most recent cases the SEC used its anti-retaliation authority to charge an executive at a company that forced a whistleblower to resign. Along with anti-retaliation protection, the commission rules also prohibit any person from deterring or preventing an individual from reporting a violation. In one such case, a hedge fund paid $2.2 million because of retaliation against a whistleblower.2

Keeping problems internal

Whistleblower rules don’t require a whistleblower to report to the company first, but they encourage doing so by building in certain incentives. For example:

  • Reporting internally first could increase the size of a reward
  • If the whistleblower reports first to the company, any information derived from the company’s own resulting investigation accrues to the credit of the whistleblower if the company then self-reports the incident to the SEC within 120 days of the internal submission by the whistleblower

The potential for significant bounties offered pursuant to the whistleblower program incents more employees to be alert for possible violations, which can mean companies may ultimately have to investigate many more allegations. This directly impacts audit committees, considering they generally oversee the company’s whistleblower process. Management should actively encourage employees to report concerns internally — ideally instead of, but at least before, reporting to the SEC — so the company can address any issues.

Investigating allegations can be complicated and time-consuming, and the new whistleblower rules may be particularly challenging for a company that does not have a well-developed and well-organized program in place. Among the questions audit committees may want to discuss with management regarding the whistleblower bounty program:

  • Are employees and supervisors adequately trained on the process?
  • Is the company promoting compliance with the regulations among its employees at all levels?
  • Is management reviewing the current whistleblower reporting process for any needed improvements?
  • Are there enough dedicated personnel to handle the tips?
  • Is there an investigation action plan in place? If so, does it include guidance on evaluating the substance and nature of an allegation, determining whether it requires further investigation and identifying who should lead the investigation?
  • Has the company identified the independent resources and advisors it may need to consult, and does it have policies as to when they should be retained?
  • Has the company reviewed its code of conduct relative to the adequacy of anti-retaliation provisions?

Ensuring and maintaining the trust and confidence of employees is an integral part of the culture of any workplace. A well-structured whistleblower process can serve to deter the risks and avoid having an even bigger problem later.

Other key issues

Learn what PwC has to say about the Whistleblower bounty program:

Additional information about the Whistleblower Bounty Program:

1 Dodd-Frank Whistleblower Program Annual Report to Congress, U.S. Securities and Exchange Commission, 2013